Debt Ratios for Home Lending

The debt to income ratio is a formula lenders use to determine how much of your income is available for a monthly home loan payment after all your other monthly debts have been fulfilled.

How to figure the qualifying ratio

Typically, underwriting for conventional mortgage loans requires a qualifying ratio of 28/36. An FHA loan will usually allow for a higher debt load, reflected in a higher (29/41) ratio.

In these ratios, the first number is the percentage of your gross monthly income that can go toward housing costs. This ratio is figured on your total payment, including homeowners' insurance, HOA dues, Private Mortgage Insurance - everything that constitutes the payment.

The second number is what percent of your gross income every month that can be spent on housing expenses and recurring debt. For purposes of this ratio, debt includes payments on credit cards, vehicle loans, child support, etcetera.

For example:

28/36 (Conventional)

• Gross monthly income of $6,500 x .28 = $1,820 can be applied to housing
• Gross monthly income of $6,500 x .36 = $2,340 can be applied to recurring debt plus housing expenses

With a 29/41 (FHA) qualifying ratio

• Gross monthly income of $6,500 x .29 = $1,885 can be applied to housing
• Gross monthly income of $6,500 x .41 = $2,665 can be applied to recurring debt plus housing expenses

If you'd like to run your own numbers, use this Mortgage Pre-Qualifying Calculator.

Guidelines Only

Remember these are only guidelines. We will be thrilled to help you pre-qualify to determine how large a mortgage loan you can afford.

BeneGroup, Inc. can answer questions about these ratios and many others. Give us a call at 4083956018.